The Interplay between Brands and Private Labels and Its Consequences on Small and Medium Wine Producers

By Hanf, Jon Heinrich | Management & Marketing, July 1, 2014 | Go to article overview

The Interplay between Brands and Private Labels and Its Consequences on Small and Medium Wine Producers


Hanf, Jon Heinrich, Management & Marketing


Introduction

For over twenty years the per-capita consumption of wine in Germany has been stable around 241 (including sparkling wine). In 2011 it was composed of 45% white, 12% rose, and 43% red wine. In recent years, red and rose wines have increased their share (DWI, 2012). As the majority of wine is bought from retailers one can assume that, in general, knowledge of wine and interest in wine are low. Hence, the majority of consumers choose wines with an easily understandable and asymmetric information reducing label (Schweickert, 2001). Thus, well-known well-known varieties and regions are important for the buying decision. As the majority of wine is bought from retailer chains, wine buyers are neither able to taste the wine, nor to receive a professional's opinion. Brands, however, are not very well established today (Hanf and Schweickert, 2014). Germany is a major import market for global brands such as Yellow Tail or Concha y Toro which have made some progress but are still not as successful as in other import markets such as the UK wine market. Nevertheless, many cooperatives as well as wineries have noticed the advantages of having a brand and are thinking about branding (Engelhard, 2012). In contrast, the German sparkling wine market is dominated by strong brands such as Henkell or Rotkäppchen. Interestingly, since a few years ago Rotkäppchen and Freixenet have been successfully increasing their activities to sell still wines under their brands (LZ, 2012). This might be interpreted as a sign of the increasing importance of strong brands as a means of differentiation.

On the consumption side, the German wine market has a volume of roughly 20 million hectolitres. German wine production on average accounts for roughly 10 million hectolitres of wine, whereas roughly 15 million hectolitres are imported. The three main distribution channels are direct sales by producers (19% market share), specialized wine stores (8%), and food retailers with 70% market share (discount chains with 40% and general retailers 30%) (DWI, 2012). An increase in the sales of discounters and retailers has been observed for many years. However, in the last few years, the combined market share has remained stable. Hence, the vast majority of wine is purchased in the distribution channels of retailers (either discounters or supermarkets). Consequently, prices are very competitive; the average price is 2.55 Euro per litre (Hanf et al., 2012). As a result of the fierce retail competition over many years, retailers work hard to differentiate themselves from their competitors. In this context the wine assortment is being used to demonstrate their quality orientation and price fairness (Hanf and Schweickert, 2007). Consequently retail own branded wines gain importance in Germany, e.g. the retail chain of the Metro Group 'real' is offering organic wine under the brand "real-bio".

In saturated markets firms develop, differentiate, and position brands and products to target desired buyer groups and to create value (Orth and Malekewitz, 2008). Careful brand management seeks to make the product relevant to the target group. Most importantly, awareness occurs when the brand is not only top-of-mind to customers, but also has easily observable distinctive qualities making it better than the other brands in the market. The distinctions that set the product apart from the competition are also known as the unique selling proposition (USP) (Meffert et al., 2012; Reeves, 1961).

The German wine market can be described as very competitive, so successful companies have to create such a USP. Branding, with its prerequisites, could be a means of doing this. A further advantage is that successful branding generates a consumer pull that the brand owner can use in the listing or annual negotiations with their retail customers (Tomczak et al., 2005). Generating listing arguments is of high importance because the largest ten retailers are the gatekeepers to the consumers. …

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